Shin Yang well-positioned to capitalise on potential surge in OSV demand

KUCHING (Sept 27): As one of the major shipbuilding and repair players in Sarawak, Shin Yang Group Bhd (Shin Yang) is well-positioned to capitalise on a potential boom in new orders for offshore support vessel (OSV) newbuilds, driven by anticipated strong demand, analysts opined.

“In our view, Shin Yang’s shipbuilding division is in a highly favourable position within the local shipbuilding market, poised to capitalise on the surge in demand for OSVs, driven by high sustaining daily charter rates.

“Early signs of recovery in the division were evident, with a 180 per cent y-o-y surge in revenue, largely underpinned by a significant increase in demand for ship repair and refurbishment, due to the growing demand for second-hand OSVs as the local market is experiencing a supply shortage,” the research team at Kenanga Investment Bank Bhd (Kenanga Research) said in a report.

It also believes that the group’s shipbuilding division is only at the early stages of an earnings boom, as the majority of its current revenue is derived from ship repairs and refurbishment.

“With three shipbuilding yards located in Kuala Baram, Miri, and Bintulu, the group possesses the potential capacity to construct up to two to six vessels per annum,” it said.

Based on its estimated cost of RM143.7 million for a new accommodation workboat (AWB) based on a recent deal by another shipbuilding company, Kenanga Research believe this could bring the group’s shipbuilding revenue potential to RM200 million to RM600 million after assuming a more conservative RM100 million per new build to be recognised over two years.

Meanwhile, the research team said Shin Yang’s shipping division, contributing 67 per cent of revenue/profit, operates a fleet of 199 vessels with a gross tonnage of approximately 326,000 mt.

“While daily charter rates (DCR) have softened y-o-y in FY24 compared to FY23 due to the normalisation of rates, we anticipate that the shipping division will remain largely stable in FY25, supported by its domestic operations and market stability, which provide consistent lifting volumes.

“Additionally, the group will focus on operational cost management to sustain its operating margins at 15 per cent,” it added.

Looking ahead, Kenanga Research expects the group’s earnings to improve 23 per cent y-o-y, primarily driven by a 20 per cent anticipated increase in shipbuilding revenue, supported by a RM90 million order for shipbuilding, with order book replenishment expected at RM100 million.

“Additionally, we foresee a 25 per cent increase in ship repair revenue, as demand for these services will likely rise due to strong demand for second-hand OSV vessels,” it said.

It expects Shin Yang’s shipping business is also set to remain stable y-o-y, as it does not foresee a significant ramp-up in shipping demand.

For FY25, the research team projects a slower earnings growth of 14.3 per cent, underpinned by a further 10 per cent increase in ship repair revenue, while shipbuilding revenue is conservatively expected to increase slightly to RM100 million.

“The group’s balance sheet is also expected to be at a net cash position in FY25 with a net cash balance of RM550 million,” it said, noting that the group pays dividends in certain years but the trend was volatile.

Kenanga Research valued Shin Yang at RM1.17 per share, based on a targeted FY25F PER of 10-folds on a fully diluted basis. It also placed an ‘add’ rating on the stock.